The case for international investing – and five potential stock ideas
Here in the U.S., most investors probably don't pay much attention to international stocks...
But it's worth taking some time to study them, if only to become a more educated investor and expand your "circle of competence."
And who knows... maybe you'll find something compelling that's in your sweet spot!
So today, continuing my coverage of last week's 20th annual Value Investing Seminar in Italy, I'll share highlights of a presentation given by my longtime friend Orlando Muyshondt.
He runs a global long-short hedge fund called Elena Partners. He's from El Salvador and spent much of his career investing in Latin America... so not surprisingly, his ideas were internationally focused.
Orlando thinks now is a particularly good time to be investing internationally because valuations in the U.S. are at historically high levels – as you can see in this chart from his presentation:
In the past, from a starting point where we were recently – in the highest decile based on price-to-earnings (P/E) multiple – the S&P 500 Index only compounded at 4.1% over the next decade (my best guess is 5% to 7%). Here's the chart Orlando shared:
Interestingly, though Orlando and I did discuss our presentations ahead of time, he also noted (as I have in several of my previous e-mails) that U.S. small-cap stocks have been trading at a historically high discount to large-cap ones:
He then showed three charts highlighting why he thinks international stocks are attractive. The first shows that they have been cheap on a P/E multiple basis:
They've also been cheap based on their 3.1% average dividend yield versus only 1.4% for the S&P 500:
Lastly, he showed that emerging markets have underperformed developed ones for the past 15 years and are close to the cheapest they've ever been on a relative basis:
So, having made the case for international stocks, Orlando proceeded to share five investment ideas.
The first three are European building-materials stocks: Switzerland's Holcim (HOLN.SW), Italy's Buzzi (BZU.MI), and Belgium's (with Greek origins) Titan Cement International (TITC.AT).
Orlando presented a number of slides showing how steadily rising demand for cement, sand, and gravel is benefitting both U.S. and European companies.
However, he favors the latter because they have less debt and nearly as high margins as their U.S. counterparts but trade at less than half the valuation levels. Here's the slide he shared:
His next idea was Hong Kong-based life insurer and investment manager Prudential (PRU.L) – not to be confused with the U.S. company of a similar name, Prudential Financial.
Orlando believes the company "is a great franchise":
And yet, the stock is at a multiyear low and has been trading at a 44% discount to what Orlando has calculated is its "embedded value":
Orlando's final idea is also based in Hong Kong – investment holding company CK Hutchison (0001.HK). The stock has been trading at levels it first reached about 30 years ago... and since peaking in May 2015, it has fallen steadily by nearly 80%.
But it pays a 6.8% dividend, which is easily covered by its substantial cash generation. And Orlando believes the company is worth $51 billion, 168% higher than its current $19 billion market cap. Here's how he broke it down in his presentation:
So, to wrap up...
I'll note that though they aren't my recommendations since I haven't done the work on them, I think these are five excellent stock ideas that are worth looking at for educational purposes – even if you're not an international investor.
And I'd also like to thank Orlando for permission to share his presentation with my readers. You can see the full 27-slide presentation right here.
Best regards,
Whitney
P.S. I welcome your feedback – send me an e-mail by clicking here.